PPF Advantages and Disadvantages
PPF (Public Provident Fund) is a long-term investment instrument. It works both as a pension instrument as well as a risk-free tax saving investment. PPF deposits allow a maximum cap of Rs. 1.50 lakh per financial year and it has a tenure of 15 years. It offers competitive interest to the PPF account holder. You can know the interest earned on PPF using PPF Calculator.
Advantages of PPF account
Find below the PPF account benefits with example:
- It generates guaranteed returns.
- It is backed by Central Government.
- It is very flexible, that means you can invest in instalments as well as lumpsum. The minimum subscription amount is also minimal which is just Rs 500/- per year.
- The contributions made to PPF account can be claimed for tax rebate under Section 80C of Income Tax.
- Interest earned on the PPF account is tax free. Compare PPF Vs Bank FD.
- The maturity proceeds are exempt from tax.
- It can be opened in the name of minor along with guardian.
- Loan facility in PPF account is available which can be availed between 3rd to 6th financial year.
- Partial withdrawal facility in PPF account is available which can be availed from 7th financial year onwards.
- PPF account can be extended for a minimum term of 5 years on in multiple of 5 years thereon as long as the account holder wishes.
Disadvantages of PPF account
- It cannot be opened by HUF, NRIs, Trust etc.
- Lack of liquidity as it offers limitations on PPF Withdrawal.
- It has a big lock-in period of 15 years.
- There is a capping of Rs 1.5 lakh per annum on deposit of amount in a PPF account.
- PPF account cannot be closed prematurely(except in case of death)
- Offers lower returns as compared to other investment avenues such as NPS, Mutual Funds, etc.
- Joint account is not permissible.
- It has a risk of inflation as its interest rate is fixed for a particular period which will be eroded by high inflation.